The Chinese government has given approval for Wanxiang Group Corporation, a major Chinese auto parts maker, to acquire U.S.-based A123 Systems, Inc. (OTCPINK:AONEQ), a U.S. manufacturer of lithium ion batteries and storage systems which is currently in bankruptcy
This deal hinges on the outcome of an auction scheduled for the first week of December, and approval from the U.S government as the company has received a $249 million grant from the Energy Department and in addition there are some national security concerns. The United States Bankruptcy Court for the District of Delaware of course must also approve. Wanxiang has said it intends to make a bid.
As to other likely bidders, on October 16th the company filed for Chapter 11 bankruptcy protection and contemporaneously entered into an asset purchase agreement with Milwaukee-based Johnson Controls, Inc. for $125 million. This agreement provides for a substantial breakup fee (up to $2.5 million, reduced from $3.75 million earlier this week) if the Bankruptcy Court approves a higher bid at auction.
The Wanxiang approval by the Chinese government noted above is related to a non-binding memorandum of understanding between A123 and Wanxiang Group “establishing the framework for a strategic investment through which Wanxiang would invest up to $450 million in A123.” Wanxiang has been lending money to A123 under this agreement.
A third player in the resolution of A123’s problems may be the U.S. government. Last week, Michigan’s two senators and eleven House members sent a letter to Treasury Secretary Tim Geithner in his role as chairman of the Committee on Foreign Investment in the United States (CFIUS).
In the letter, Michigan’s Congressional delegation noted that “A123 has developed cutting-edge battery technology that is integrated into all facets of its business, including its defense, electric grid, telecommunications, and automotive sectors.” They then raised “concerns about the potential effect on U.S. national security by the transaction in question.”, especially “in light of ongoing Chinese attacks on critical infrastructure in the United States”.
One of the signers, Senator Carl Levin, serves in the Senate as chairman of the Armed Services Committee and is a senior member of the Homeland Security and Governmental Affairs Committee. With Carl Levin’s clout and the Energy Department’s involvement, one would expect that the letter is receiving serious attention. (Interestingly Carl’s brother, a Michigan House member whose website is linked to above, also signed the letter.)
The auction is scheduled for next week on December 6th. So this could play out fairly quickly.